Restoring confidence in the banking sector

  • The Canadian geese experience

The roles of banks in any country cannot be underestimated because they contribute significantly to economic development through their services to individuals, enterprises and government. The contributory roles of banks revolve around deposit mobilisation from one side of the public (savers) to the other (consumers) through credit creation or loans for different purposes as required by law. Thus, banks require unfettered trust and confidence from the public to sustain their operations – but this cannot be said of Ghana’s banking sector in recent times.

The level of confidence is at its lowest ebb due to uncertainties resulting from the revocation of licences from seven (7) banks by the Bank of Ghana within a space of one year. This occurred at the backdrop of legacy problems from the DKM Microfinance crisis and insolvent lenders like ASN Savings and Loans. The Bank of Ghana engaged the public through conferences and press releases with all assurances that depositors’ savings were safe. The repeated assurances to the public were meant to avoid negative reactions by way of panic-withdrawals – but the narrative has been different on the ground.

There are increasing cases of panic-withdrawals leading to liquidity challenges. This situation is taking a heavy toll on the operations of institutions. I personally witnessed such an incident on Thursday, September 30, 2018, at a financial institution nearby. Some depositors had waited for many hours at the company’s premises (car park), either for their mature investments or to withdraw their normal deposits – but were unable to access them. For now, the only gasp of breath for the company’s survival is that its name has not caught the media’s attention. I hope the situation does not get out of control, or else its branches will soon be inundated with more depositors and require extra space to accommodate them.

Since the public relies on the media, especially radio for news – and then react to such, the recurrent cases of panic-withdrawals confirm my feeling that there is distortion or misunderstanding in the information-sharing process to the public concerning the banking crisis – hence the misapprehension about losing deposits. These are legitimate public concerns that need to be addressed in a timely manner to minimise the worrying situation. Indeed, some of the occurrences can be avoided or controlled if we get our act together.

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The flock of geese

There is a factual story of Canadian geese that fly in a V-shape formation to create their own unique form of coordination toward one direction. When each goose flaps its wings, the immediate geese draw their strength from it. To maintain momentum during a journey, the geese flying from behind honk to encourage those up-front to keep up their speed in the usual V-shape formation. With that sense of understanding and cooperation among them, each goose resists the temptation of flying alone and takes advantage of the concerted power of others along the way.

Anytime the leader of the flock is tired on a trip, it allows another goose from behind to lead in the usual ‘V’ shape formation. As nature will also have its way, a goose sometimes falls sick or is injured – hence, falling out of the normal formation. In such situations, some of the other geese fly down to lend their support and protection to the sick one. Indeed, they stay with the fallen goose until it recovers and can fly again. The geese then fly together to catch up with the group.

One striking lesson we pick from the geese experience is that they always maintain a collective sense of togetherness toward their destination for a shared vision. This episode comes in handy toward collective efforts to restore trust and confidence which are fast declining in Ghana’s banking sector.

Collective Voice

Once again, we should accept the fact that there are serious challenges in the banking sector which require collective efforts of all stakeholders – including the Bank of Ghana, banks, government, and the press – to address them. As the regulator with responsibility to ensure a sound banking system through regulation, the central bank has since initiated many reforms toward addressing the problems.

The reform initiatives such as implementing the deposit protection scheme and improving collaboration with other financial regulatory bodies aim at restoring confidence in banking sector, but the collective voice required by way of the Canadian geese from all other stakeholders to build a strong synergy seems to be missing  – resulting in the misinformation with its rippling effects.

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In the public’s mind, many interpret the issues to mean a turf-war between the central bank and the banks – with local ones being the main target. Hence, the central bank is being considered indifferent and good at ringing alarm bells that invite the public to the banking halls for their deposits more than the usual. At this moment, the regulator needs to strengthen its determination toward addressing the problems by seeking consensus media support to promote better understanding of the issues through public service broadcasts.

This will require further efforts beyond the occasional press conferences to build bridges from the media to the public; it must be through consistent and coordinated messages in the public broadcasts. We also need teamwork to ensure that the public awareness and education programmes make the needed impact to restore confidence in the financial system.

Again, public appearances and speeches from authorities should reflect the common good and goodwill to reignite trust and confidence in the sector. Indeed, money doesn’t like much noise; and the fervent calls by many industry watchers and professionals to purge the banking sector crisis of politics are welcome and worth supporting.

Like the proverbial Canadian geese, the insolvent (ailing) banks have fallen despite the bail-outs to revive them. We can see or feel the attendant contagion effects. As stakeholders, we should not allow the remaining ones to fall through our actions and inactions, since such unimaginable occurrences will affect our economic well-being. We should therefore join forces through effective and better communication to restore the banking sector’s reputation.

While recognising the spirit of common purpose to safeguard depositors’ interest, we cannot afford to compromise on the prevailing regulations again. It is a call to duty and we must uphold ethical standards at all times, no matter the temptations. Maybe we can agree to flap our arms like the geese and move collectively to address the banking sector bottlenecks. In the V-shape formation, victory is guaranteed.

 God bless You for reading. Have a blessed day.


                                                                        The Writer is a Chartered Banker


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